Bruce Campbell is president and portfolio manager, Campbell, Lee & Ross. His focus is on Canadian large caps.
Merus Labs (MSL.TO)
Merus Labs is a specialty pharma company that is focused on acquiring prescription drug products with the potential for creating value over and above the purchase price. They will do this by capitalizing on strategic growth opportunities while growing product sales. They have the combination of enhanced critical mass, cash in the bank from a recent issue and new management. Recent purchases in the $2.80-2.95 last week.
Crescent Point Energy (CPG.TO)
The recent purchase of Legacy will be 3-4 per cent accretive to cash flow and will lower the payout ratio. The $600-million equity issue to pay for it has pressured the stock and provides a short-term chance to buy the stock near a 10-per-cent yield. Their hedges are still meaningful and we believe they will show excellent production and cash flow growth this year. Purchases last week in the low 28's
Element Financial (EFN.TO)
Management has a track-record of executing on acquisitions. We have to believe that they will make full use of the capital that they have raised in advance. They are rumoured to be buyers of the GE fleet assets and accordingly we see potential upside relative to where the shares are trading today. Based on a package deal from GE, including fleet and railcar assets the upside is roughly 25 per cent to $23. That assumes a similar valuation to the current one. Purchases last month in the $16.75 range.
Past Picks: March 12, 2014
Bellatrix Exploration (BXE.TO)
Then: $9.32; Now: $3.61 -61.27%; Total Return: -61.27%
Then: $99.03; Now: $129.56 +30.83%; Total Return: +35.06%
Element Financial (EFN.TO)
Then: $12.83; Now: $19.05 +48.48%; Total Return: +48.48%
Total Return Average: +7.42%
Equity markets over the past few weeks are stuck in a sideways pattern and lower summer volumes will continue that trend. There continues to be a buy-on-dip mentality and is well entrenched as many investors fear missing out on another leg higher, with increased M&A activity providing an underlying bid to stocks. On the opposite, worries that the equity market is overbought, overvalued and a big correction is overdue are capping the market upside. The alternatives continue to be unattractive and we believe that, albeit with heightened volatility, the markets will grind their way a bit higher into the fall. It does become more of a stock pickers market now, growth is at a premium with the slow upside for GDP environment. Look to healthcare, technology and non-bank financials as places for undervalued earnings upside.